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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI G.S. PANNU
The captioned appeal by the assessee is directed against the order of the CIT(A)-17, Mumbai dated 21.03.2017, pertaining to the Assessment Year 2010-11, which in turn has arisen from the order passed by the Assessing Officer dated 13.03.2015 under section 154 of the Income Tax Act, 1961 (in short ‘the Act’).
Although the assessee has raised multiple Grounds of appeal, but the substantive dispute arises from the redetermination of income made by the Assessing Officer in an order passed u/s 154 of the Act dated 13.03.2015 rectifying the income determined earlier in the assessment made u/s 143(3) of the Act dated 08.03.2013 primarily on account of computation of disallowance u/s 14A of the Act.
3. In brief, the relevant facts are that in an assessment finalised u/s 143(3) of the Act dated 08.03.2013, the total income was determined at Rs.11,56,350/- as against the returned income of Rs.5,51,919/- under the normal provisions of the Act, and the difference between the returned and assessed income was on account of disallowance made u/s 14A of the Act. The Assessing Officer had computed the disallowance u/s 14A of the Act as per Rule 8D(2) of the Income Tax Rules, 1962 (in short ‘the Rules’). Subsequently, the Assessing Officer passed an order dated 13.03.2015 u/s 154 of the Act rectifying the error in computation of disallowance u/s 14A of the Act. In the said order, the Assessing Officer computed the disallowance as per Rule 8D(2) of the Rules at Rs.35,28,339/- as against Rs.6,04,408/- worked out earlier in the order u/s 143(3) of the Act and accordingly, the balance of Rs.40,80,281/- was determined.
4. Notably, in the order passed u/s 154 of the Act dated 13.03.2015, which is the impugned order, the Assessing Officer computed the book profit u/s 115JB of the Act for the first time. Pertinently, in the return of income filed, assessee had determined the book profit u/s 115JB of the Act at Rs.1,89,28,340/- and in the assessment originally finalised u/s 143(3) of the Act no adjustment was made to the ‘book profit’ as determined by the assessee u/s 115JB of the Act, whereas in the order passed u/s 154 of the Act dated 13.03.2015, the Assessing Officer computed the book profit at Rs.2,24,56,679/- by adjusting it by the amount of disallowance computed for the purposes of Sec. 14A of the Act at Rs.35,28,339/-. The said order of the Assessing Officer was challenged in appeal before the CIT(A), who has since sustained the action of the Assessing Officer. Not being satisfied with the order of the CIT(A), assessee is in further appeal before us.
5. Before me, the learned representative for the assessee pointed out that redetermination of book profit u/s 115JB of the Act was not a subject matter of the show-cause notice issued u/s 154 of the Act and that the computation u/s 115JB of the Act was made for the first time in the impugned order passed u/s 154 of the Act, and not at the time of the original assessment u/s 143(3) of the Act. It was, therefore, contended that the said action of the Assessing Officer is quite untenable. Secondly, it is pointed out that even in respect of disallowance u/s 14A of the Act under the normal provisions of the Act, assessee had no opportunity to explain the position as the order has been passed without considering the stand of the assessee.
On the other hand, the ld. DR appearing for the Revenue pointed out that the computation of book profit u/s 115JB of the Act was a mandatory requirement, which has been justifiably rectified by the Assessing Officer in the order passed u/s 154 of the Act.
I have carefully considered the rival submissions. Firstly, I may deal with the recomputation of disallowance u/s 14A of the Act by applying the provisions of Rule 8D(2) of the Rules in the impugned order passed u/s 154 of the Act. In this context, it is notable that the Assessing Officer himself records in the impugned order that there was no response from the assessee and he has proceeded to recompute the disallowance at Rs.35,28,339/-. The preliminary grievance of the assessee before me is that atleast an opportunity be allowed to the assessee to put forth his stand on the recomputation of the disallowance sought to be made by the Assessing Officer. I find the plea of the assessee quite justifiable and accordingly direct the Assessing Officer to consider the submissions that the assessee may put forth before him while proposing to recompute the disallowance as per Rule 8D(2) of the Rules for the purposes of Sec. 14A of the Act under the normal provisions of the Act.
Insofar as the application of clause (f) of Explanation – I to Sec. 115JB(2) of the Act relating to the determination of amount relatable to income exempt u/s 10 of the Act for computing the book profit u/s 115JB of the Act is concerned, it is notable that in the order passed u/s 115JB of the Act, the Assessing Officer has adopted the calculation made as per Rule 8D(2) of the Rules. This action of the Assessing Officer is clearly contrary to the decision of the Special Bench of the Tribunal in the case of Vireet Investment (P.) Ltd., [2017] 82 taxmann.com 415 (Delhi – Trib.) (SB). In any case, the learned representative for the assessee had referred to a copy of the show-cause notice issued by the Assessing Officer u/s 154 of the Act dated 02.01.2015, which clearly shows that the Assessing Officer did not propose any tinkering to the book profit u/s 115JB of the Act in the said notice. Notably, in the assessment finalised u/s 143(3) of the Act dated 08.03.2013, the Assessing Officer had accepted the computation of book profit as made by the assessee for the purposes of Sec. 115JB of the Act. Thus, in the absence of any mention of the same in the show-cause notice issued u/s 154 of the Act, such an adjustment could not have been made in the impugned order passed u/s 154 of the Act. Thus, the action of the Assessing Officer on this count is set-aside as being bereft of any jurisdiction. So, however, the Assessing Officer shall be at liberty to determine the ‘book profit’ u/s 115JB of the Act, as the law may permit.
In the result, appeal of the assessee is allowed to the above extent.
Order pronounced in the open court on 22nd September, 2017.